Wiacek Corporation has received a request for a special order of 5,500 units of

Question

Wiacek Corporation has received a request for a special order of 5,500 units of product F65 for $27.40 each. Product F65's unit product cost is $27.15, determined as follows: Direct materials $2.80 Direct labor 8.10 Variable manufacturing overhead 7.20 Fixed manufacturing overhead 9.05 Unit product cost $27.15 Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product F65 that would increase the variable costs by $3.80 per unit and that would require an investment of $27,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

$(82,225)

$1,375

$3,250

$(46,525)

Explanation / Answer

If the special order is accepted, the company's overall net operating income would increase by $3250 as above. Fixed cost is not considered for decsion making as it will not going to change whether order is accepted or not.

$ $ Sales Price (5500units*$27.4)       150,700 Less:Variable cost Direct Material 2.8 Direct Labour 8.1 Variable Manufacturing Overhead 7.2 Increase in variable Cost 3.8 Total Variable Cost 21.9       120,450 (5500 units*$21.9) Less:Investment in Mold        27,000 Increase in overall net opearting income          3,250

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